Trading volume explodes: Wall Street shapes market predictions

No longer just a game for political enthusiasts, small individual bettors, and those seeking quick money. The prediction market is currently witnessing the emergence of a new force—top trading firms from Wall Street. The Financial Times recently reported that giants like DRW, Susquehanna, and Tyr Capital are each establishing specialized divisions to trade on platforms such as Polymarket and Kalshi. Trading volumes have skyrocketed—from under $100 million at the start of 2024 to over $8 billion by December 2025, and on a single day in January 2026, trading volume hit a record $701.7 million.

From millions to billions: The explosion of trading volume

This shift is no coincidence. DRW has recently advertised trading positions with starting salaries of up to $200,000 per year, requiring candidates to be capable of “monitoring and trading 24/7 on probabilistic contract exchanges.” Susquehanna, a major player in options trading, is also seeking traders who can “identify mispricings,” detect “abnormal activity,” and “spot opportunities for mispriced valuations” in these markets. Tyr Capital, a hedge fund specializing in cryptocurrencies, continues to expand with staff experienced in “deploying complex trading strategies.”

These numbers speak for themselves. When trading volume increases more than 80-fold in just 12 months, it creates a large enough asset pool to attract the biggest players in finance.

Arbitrage strategies: How organizations profit from predictions

Small investors and institutions are not playing the same game on these exchanges. Individual investors often rely on information or intuition to bet for or against a specific event—essentially, sports betting. But professional funds focus on what is called “arbitrage”—exploiting price discrepancies between platforms or between prediction markets and traditional financial markets.

In October 2025, Boaz Weinstein, founder of Saba Capital Management, publicly shared this approach. He pointed out that Polymarket prices the probability of a recession at 50%, while traditional credit markets assign only about 2%. From this discrepancy, fund managers can execute previously impossible paired trades. Specifically, they can:

• Buy a “no recession” prediction contract on Polymarket (relatively cheap since the market assigns a 50% probability)
• Simultaneously short bonds or credit assets that would plummet if a recession occurs (still expensive because the credit market assigns only a 2% probability)

The result: if a recession happens, they incur a small loss on Polymarket but make significant profits from bond crashes. If the economy avoids recession, they profit from Polymarket and only lose a small amount on credit assets. Prediction markets have become a powerful price discovery tool for those who know how to use them.

The privileged class: Advantages small investors lack

What tips the scales further in favor of big players are systemic privileges. Susquehanna is the first official market maker for Kalshi and has secured an exclusive deal with Robinhood. Kalshi offers market makers huge incentives: lower trading fees, higher trading limits inaccessible to regular investors, and optimized trading channels.

The presence of organized market makers will quickly eliminate opportunities that small bettors once exploited. Previously, if you noticed the same event priced at a 60% probability on Polymarket but only 55% on Kalshi, you could execute a simple arbitrage trade. Such opportunities rarely last long as algorithms and professional staff continuously scan these markets.

Liquidity—once a weakness of prediction markets—is also about to be addressed. When you want to buy or sell large volumes of contracts, organized market makers ensure you always have a counterparty, reducing bid-ask spreads and increasing overall trading volume.

Repeating history: When organizations take over new markets

Traders recruited with hundreds of thousands of dollars—PhDs in mathematics, physics, and computer science from top universities—will usher prediction markets into a new era. Instead of simple contracts like “Trump will win,” we will see:

• Structured composite contracts linking multiple events
• Time-series contracts predicting the probability of an event within a specific timeframe
• Conditional probability products, such as “if A occurs, what is the probability B?”

Looking back at financial history—from forex markets to futures, and then to cryptocurrencies—each emerging market follows a similar trajectory: starting with retail investor enthusiasm, gradually being taken over by large institutions with superior technology, capital, and access. Prediction markets are repeating this pattern at a rapid pace.

Hedge funds can leverage their technological advantages, capital scale, and rule-based privileges to dominate most trading volume. For small investors, while there are still opportunities in long-term predictions or niche areas, the reality is unavoidable: as Wall Street’s sophisticated machines begin to operate at full capacity, the era of ordinary people easily profiting from informational imbalances may be coming to an end.